-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VYBoD5gMKx3TcwaHfvWWNDYgC6R9MYE7pIrvnvehphv/aAwbX9RSH9TRi0hwbjvv 8eZbb0AM1enxm4Dz4nRDiA== 0000857737-05-000076.txt : 20051007 0000857737-05-000076.hdr.sgml : 20051007 20051007172723 ACCESSION NUMBER: 0000857737-05-000076 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20050722 ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20051007 DATE AS OF CHANGE: 20051007 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ICONIX BRAND GROUP, INC. CENTRAL INDEX KEY: 0000857737 STANDARD INDUSTRIAL CLASSIFICATION: FOOTWEAR, (NO RUBBER) [3140] IRS NUMBER: 112481903 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-10593 FILM NUMBER: 051130351 BUSINESS ADDRESS: STREET 1: 215 W. 40TH STREET, 6TH FL. CITY: NEW YORK STATE: NY ZIP: 10018 BUSINESS PHONE: 212-730-0030 MAIL ADDRESS: STREET 1: 215 W. 40TH STREET, 6TH FL. CITY: NEW YORK STATE: NY ZIP: 10018 FORMER COMPANY: FORMER CONFORMED NAME: CANDIES INC DATE OF NAME CHANGE: 19930604 FORMER COMPANY: FORMER CONFORMED NAME: MILLFELD TRADING CO INC DATE OF NAME CHANGE: 19920703 8-K/A 1 icon_8ka.txt PRO FORMA FINANCIALS - ACQUISITION UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 8-K/A CURRENT REPORT Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): July 22, 2005 ------------------ ICONIX BRAND GROUP, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 0-10593 11-2481093 - -------------------------------------------------------------------------------- (State or Other (Commission (IRS Employer Jurisdiction of File Number) Identification No.) Incorporation) 215 West 40th Street, New York, NY 10018 - -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code (212) 730-0030 -------------- Not Applicable - -------------------------------------------------------------------------------- (Former Name or Former Address, if Changed Since Last Report) Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below): |_| Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |_| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |_| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) On July 28, 2005, Iconix Brand Group, Inc., a Delaware Corporation ("Registrant"), filed a Current Report on Form 8-K with the Securities and Exchange Commission announcing, among other things, its July 22, 2005 acquisition of substantially all of the assets of Joe Boxer Company, LLC, a Delaware limited liability company, Joe Boxer Licensing, LLC, a Delaware limited liability company, JBC Canada Holdings, LLC, a Delaware limited liability company and Joe Boxer Canada, LP, a Delaware limited partnership. The Registrant is filing this amendment to the Form 8-K to include the financial statements and pro forma financial information described in Item 9.01 below. Item 9.01 Financial Statements and Exhibits (a) Financial Statements of Business Acquired Audited Financial Statements: (Filed herewith as Exhibit 99.2) Independent Auditors' Report Consolidated and Combined Balance Sheet at December 31, 2004 and 2003 Consolidated and Combined Statement of Income and Changes in Member's Equity for the years ended December 31, 2004 and 2003 Consolidated and Combined Statement of Cash Flows for the years ended December 31, 2004 and 2003 Notes to the Consolidated and Combined Financial Statements Unaudited Financial Statements: (Filed herewith as Exhibit 99.3) - Unaudited Consolidated and Combined Balance Sheets at June 30, 2005 Unaudited Consolidated and Combined Statements of Income and Changes in Member's Equity for the six months ended June 30, 2005 and 2004 Unaudited Combined Statements of Cash Flows for the six months ended June 30, 2005 and 2004 Notes to the Unaudited Consolidated and Combined Financial Statements (b) Pro Forma Financial Information. (Filed herewith as Exhibit 99.4) Pro forma Consolidated Balance Sheets at June 30, 2005 Pro forma Consolidated Statements of Operations for the six months ended June 30, 2005 Pro forma Consolidated Statements of Operations for the year ended December 31, 2004 (d) Exhibits Exhibit 2.1* - Asset Purchase Agreement dated July 22, 2005 by and among Registrant, Joe Boxer Company, LLC, Joe Boxer Licensing, LLC, JBC Canada Holdings, LLC, Joe Boxer Canada, LP, and William Sweedler, David Sweedler, Alan Rummelsburg, Joseph Sweedler and Arnold Suresky Exhibit 4.1* - Second Amended and Restated Indenture dated as of July 1, 2005 by and among IP Holdings LLC, as issuer, and Wilmington Trust Company, as Trustee Exhibit 23.1 - Consent of BDO Seidman, LLP Exhibit 99.1* - Note Purchase Agreement by and among IP Holdings LLC, Iconix Brand Group, Inc. and Mica Funding, LLC, dated July 22, 2005 Exhibit 99.2 Independent Auditors' Report; Consolidated and Combined Balance Sheet at December 31, 2004 and 2003; Consolidated and Combined Statement of Income and Changes in Member's Equity for the years ended December 31, 2004 and 2003; Consolidated and Combined Statement of Cash Flows for the years ended December 31, 2004 and 2003; Notes to the Consolidated and Combined Financial Statements Exhibit 99.3 Unaudited Consolidated and Combined Balance Sheets at June 30, 2005; Unaudited Consolidated and Combined Statements of Income and Changes in Member's Equity for the six months ended June 30, 2005 and 2004; Unaudited Combined Statements of Cash Flows for the six months ended June 30, 2005 and 2004; Notes to the Unaudited Consolidated and Combined Financial Statements Exhibit 99.4 Pro forma Consolidated Balance Sheets at June 30, 2005; Pro forma Consolidated Statements of Operations for the six months ended June 30, 2005; Pro forma Consolidated Statements of Operations for the year ended December 31, 2004 - ----------------- * Previously filed with Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on July 28, 2005. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ICONIX BRAND GROUP, INC. (Registrant) By: /s/Neil Cole ----------------------------------------- Neil Cole President and Chief Executive Officer Date: October 7, 2005 EX-23.1 2 ex231.txt CONSENT OF BDO SEIDMAN, LLP Exhibit 23.1 Consent of Independent Registered Public Accounting Firm Iconix Brand Group, Inc. New York, New York We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos. 333-96985, 333-116716 and 333-120581) and on Form S-8 (Nos. 333-27655, 333-49178, 333-68906, 333-75658 and 333-127416) of Iconix Brand Group, Inc. of our report dated October 7, 2005, relating to the consolidated financial statements of JBC Holdings, LLC and Subsidiaries for the years ended December 31, 2004 and 2003, included in the Current Report on Form 8-K/A of Iconix Brand Group, Inc. for the event dated July 22, 2005. /s/ BDO Seidman, LLP BDO Seidman, LLP New York, New York October 7, 2005 EX-99.2 3 ex992.txt AUDITED FINANCIAL STATEMENTS Exhibit 99.2 JBC Holdings, LLC and Subsidiaries Consolidated and Combined Financial Statements Years Ended December 31, 2004 and 2003 JBC Holdings, LLC and Subsidiaries Contents Independent auditors' report 3 Consolidated and combined financial statements: Balance sheets 4 Statements of income and changes in members' equity 5 Statements of cash flows 6-7 Notes to consolidated and combined financial statements 8-21 2 Independent Auditors' Report Members of JBC Holdings, LLC Westport, CT We have audited the accompanying consolidated and combined balance sheets of JBC Holdings, LLC ("JBC") and Subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of income and changes in members' equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated and combined financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of JBC Holdings, LLC and Subsidiaries as of December 31, 2004 and 2003, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles in the United States of America. /s/ BDO Seidman, LLP BDO Seidman, LLP New York, New York October 6, 2005 3 JBC Holdings, LLC and Subsidiaries Consolidated and Combined Balance Sheets
December 31, 2004 2003 - ----------------------------------------------------------------------------------- ---------------- ----------------- Assets Current: Cash $ - $ 88,252 Royalties receivable (Notes 3 and 15) 271,267 2,802,505 Note receivable (Note 4) 100,000 100,000 Due from member (Note 8) - 291,667 Due from affiliated companies (Note 9) 9,440,155 7,251,970 Due from WAG (Note 1) 2,095,073 - Inventory (Note 2) 13,472 - Prepaid expenses and other current assets 74,438 35,322 Other receivable (Note 5) 75,000 155,394 =================================================================================== ================ ================= Total current assets 12,069,405 10,725,110 - ----------------------------------------------------------------------------------- ---------------- ----------------- Property and equipment, net (Notes 2, 6 and 13) 330,654 2,338,441 - ----------------------------------------------------------------------------------- ---------------- ----------------- Other assets: Intangible assets, net (Notes 2 and 7) 11,864,139 12,055,403 Note receivable - 50,000 Security deposits - 8,000 - ----------------------------------------------------------------------------------- ---------------- ----------------- Total other assets 11,864,139 12,113,403 - ----------------------------------------------------------------------------------- ---------------- ----------------- $24,264,198 $25,176,954 =================================================================================== ================ ================= Liabilities and Members' Equity Current liabilities: Bank overdraft (Note 2) $ 95,141 $ - Current portion of note payable (Note 10) 3,421,325 5,246,308 Accrued interest, note payable - 1,952,614 Current portion of obligations under capital leases (Note 13) - 9,899 Accounts payable and accrued expenses (Note 15) 1,141,143 989,259 Advances from factor - 353,831 Due to affiliated companies (Notes 9 and 16) 38,179 2,113,251 Advance royalties - 2,000,000 Due to licensee (Note 11) 25,000 25,000 - ----------------------------------------------------------------------------------- ---------------- ----------------- Total current liabilities 4,720,788 12,690,162 - ----------------------------------------------------------------------------------- ---------------- ----------------- Long-term liabilities: Note payable (Note 10) 7,377,133 10,753,692 Due to licensee - 25,000 Deferred rent payable 38,474 47,916 - ----------------------------------------------------------------------------------- ---------------- ----------------- Total long-term liabilities 7,415,607 10,826,608 - ----------------------------------------------------------------------------------- ---------------- ----------------- Total liabilities 12,136,395 23,516,770 Commitments and contingencies (Notes 14 and 15) Members' equity 12,127,803 1,660,184 - ----------------------------------------------------------------------------------- ---------------- ----------------- $24,264,198 $25,176,954 =================================================================================== ================ ================= See accompanying notes to consolidated and combined financial statements.
4 JBC Holdings, LLC and Subsidiaries
Consolidated and Combined Statements of Income and Changes in Members' Equity Year ended December 31, 2004 2003 ----------------------------------------------------------------------- ---------------------- ---------------------- Royalty income $20,057,694 $19,695,584 ----------------------------------------------------------------------- ---------------------- ---------------------- Operating expenses: Selling and distribution (Note 16) 457,346 38,674 General and administrative (Note16) 5,350,309 7,514,327 Loss on disposal of fixed assets (Note 6) 1,676,921 - Depreciation and amortization (Notes 6 and 7) 522,132 846,085 ----------------------------------------------------------------------- ---------------------- ---------------------- Total operating expenses 8,006,708 8,399,086 ----------------------------------------------------------------------- ---------------------- ---------------------- Income from operations 12,050,986 11,296,498 ----------------------------------------------------------------------- ---------------------- ---------------------- Other income (expense): Interest expense, net (544,432) (1,295,308) ----------------------------------------------------------------------- ---------------------- ---------------------- Total other income (expense) (544,432) (1,295,308) ----------------------------------------------------------------------- ---------------------- ---------------------- Net income 11,506,554 10,001,190 Members' equity (deficiency) - beginning of year 1,660,184 (8,255,379) Distribution to members (1,038,935) (85,627) ----------------------------------------------------------------------- ---------------------- ---------------------- Members' equity - end of year $12,127,803 $1,660,184 ======================================================================= ====================== ====================== See accompanying notes to consolidated and combined financial statements.
5
JBC Holdings, LLC and Subsidiaries Consolidated and Combined Statements of Cash Flows Year ended December 31, 2004 2003 ----------------------------------------------------------------------- ---------------------- ---------------------- Cash flows from operating activities: Net income $11,506,554 $10,001,190 ----------------------------------------------------------------------- ---------------------- ---------------------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 512,690 851,267 Gain on transfer of property and equipment - (7,235) Loss on disposal of fixed assets 1,676,921 - Loss on write-off of other receivables 80,394 - Changes in operating assets and liabilities: Royalties receivable 2,531,238 (422,295) Note receivable 50,000 50,000 Security Depost 8,000 - Inventory (13,472) - Prepaid expenses and other current assets (39,116) 571,452 Other receivable - 519,606 Accrued interest note payable (1,952,614) 847,978 Accounts payable and accrued expenses 151,882 760,793 Advances from factor (353,831) (984,306) Due to affiliated companies (2,075,072) (5,259,009) Advance royalties (2,000,000) (3,000,000) Loan payable - (147,816) ----------------------------------------------------------------------- ---------------------- ---------------------- Total adjustments (1,422,980) (6,219,565) ----------------------------------------------------------------------- ---------------------- ---------------------- Net cash provided by operating activities 1,008,3574 3,781,625 ----------------------------------------------------------------------- ---------------------- ---------------------- Cash flows from investing activities: Bank overdraft 95,141 (89,947) Proceeds on transfer of property and equipment to an affiliated company - 269,808 Payments for property and equipment - (16,905) ----------------------------------------------------------------------- ---------------------- ---------------------- Net cash provided by (used in) investing activities 95,141 162,956 ----------------------------------------------------------------------- ---------------------- ---------------------- Cash flows from financing activities: Payment of note payable (5,201,542) - Proceeds from deferred royalty - financier - 8,415,000 Payments to deferred royalty financier - (9,000,000) Due from affiliated companies (1,896,518) (3,052,167) Due from WAG (2,095,073) - Payments of obligations under capital leases (9,899) (109,634) Distribution to members (1,038,935) (85,627) Payments on due to licensee (25,000) (25,000) ----------------------------------------------------------------------- ---------------------- ---------------------- Net cash used in financing activities (10,266,967) (3,857,428) ----------------------------------------------------------------------- ---------------------- ---------------------- Net increase (decrease) in cash (88,252) 87,153 Cash, beginning of year 88,252 1,099 ----------------------------------------------------------------------- ---------------------- ---------------------- Cash, end of year $ - $ 88,252 ======================================================================= ====================== ====================== See accompanying notes to consolidated and combined financial statements.
6
Year ended December 31, 2004 2003 ----------------------------------------------------------------------- ---------------------- ---------------------- Supplemental disclosure of cash flow information: Cash was paid for interest, net of interest received from factor $ 874,994 $239,969 Non-cash financing activities: Redemption of two members' interest in an affiliated company in exchange for a former member's loan and subsequent distribution of that interest in the same affiliated Company to the remaining member of WAG $291,667 - ======================================================================= ====================== ====================== See accompanying notes to consolidated and combined financial statements.
7 JBC Holdings, LLC and Subsidiaries Notes to Consolidated and Combined Financial Statements 1. General (a) Basis of Presentation and Description of Business Windsong Allegiance Group, LLC ("WAG") - principally serves as a holding company for its wholly-owned (previously 75% owned) subsidiary, JBC Holdings, LLC. As a result of the master exchange and separation agreement, WAG acquired in 2004, the remaining 25% interest from nZania II LLC, ("nZania"), the former minority shareholder. The consolidated and combined financial statements include the accounts of the companies listed below, all of which are under common control (collectively referred to as the "Companies") as follows: JBC Holdings, LLC ("JBC") - principally serves as a holding company for its wholly-owned subsidiaries. As a result of the master exchange and separation agreement (explained below), JBC is now owned 100% (previously 75% owned) by WAG. Joe Boxer Licensing, LLC ("Licensing") - licenses (Note 14), markets, promotes and advertises the Joe Boxer Trademark. Licensing also serves as the sole parent company for Joe Boxer Company, LLC ("Boxer Co.") which maintains the Joe Boxer Trademark. JBC Canada Holdings, LLC ("JBC Canada") - is the general partner and holds a .5% interest in Joe Boxer Canada, LP which holds the rights to license the Joe Boxer Trademark in Canada. The remaining 99.5% interest in Joe Boxer Canada, LP is held by limited partners who are also members of WAG. The licensing income from operations of Joe Boxer Canada, LP for the years ended December 31, 2004 and 2003 amounted to $1,059,540 and $840,868, respectively, and was combined with JBC Canada and consolidated with JBC. Licensing and JBC Canada are also parties to other licensing agreements which grant licensees exclusive rights to sell licensed products in specific territories. 8 (b) Acquisition On March 28, 2001, JBC acquired certain net assets of Joe Boxer Corporation, an unrelated party, for a cash price of $12,025,000 plus a note payable of $3,500,000 plus the assumptions by JBC of certain capital lease obligations which amounted to $421,749 in a business combination accounted for by the purchase method. Under the purchase method of accounting, the purchase price was allocated to the fair value of the assets acquired including $13,500,000 to trademark and approximately $4,400,000 to property plant and equipment. 2. Summary of Significant Accounting Policies (a) Principles of Consolidation and Combination All significant intercompany transactions and balances have been eliminated in consolidation and combination. (b) Use of Estimates The preparation of the consolidated and combined financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, and revenue and expenses, together with amounts disclosed in the related notes to the consolidated and combined financial statements. Actual results could differ from the recorded estimates. (c) Cash Cash includes cash on hand with financial institutions located in Connecticut. As of December 31, 2003, deposits with financial institutions in the amount of approximately $8,500 are not covered by the Federal Deposit Insurance Corporation. (d) Inventory 9 Inventory, consisting principally of finished goods, is valued at the lower of cost (principally the specific identification method) of market. (e) Property and Equipment and Depreciation Property and equipment is stated at cost. Depreciation is provided over the estimated useful lives of the assets, utilizing principally the straight- line method. Expenditures for maintenance, repairs and renewals, which neither materially add to the value of the property nor appreciably extend its useful life, are charged to operations as incurred. When depreciable assets are sold or otherwise retired from service, their cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in the results of operations. As part of the purchase of assets from Joe Boxer Corporation, JBC assumed certain noncancelable capital leases for furniture, displays, and equipment. Under the terms of the leases, (a) the lessors retain a security interest in the leased assets and (b) JBC is obligated for the payment of taxes, insurance and maintenance costs, which are included in the results of operations. At December 31, 2003, the asset values related to capital leases were included in property and equipment at the present value of the minimum lease payments at inception plus any additional costs incurred or fair value, if lower. The capital lease obligations were reflected as part of current and noncurrent liabilities, and the associated interest was charged to expense over the related lease terms. 10 (f) Intangible Assets, Net and Amortization The Companies follows Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets". SFAS No. 142 addresses the financial accounting and reporting for acquired goodwill and other intangible assets with indefinite lives. This statement provides that intangible assets with finite useful lives continue to be amortized over their estimated useful lives and that intangible assets with indefinite lives and goodwill not be amortized, but be tested at least annually for impairment. The Companies have determined that trademark has an indefinite life because it is expected to generate cash flows indefinitely. The Companies perform an annual impairment test for intangible assets under SFAS No. 142. Intangible assets are evaluated whenever events or changes in circumstances indicate that the carrying value of the assets may be impaired. An impairment loss is recognized when the fair value or the estimated future cash flows expected to result from the use of the assets, including disposition, is less than the carrying value of the assets. Amortization of the financing cost is provided on the straight-line basis over the 3 3/4 year term of the related debt. The financing cost was fully amortized as of December 31, 2004. (g) Advertising Costs Advertising costs are charged to operations as incurred. Advertising costs for the years ended December 31, 2004 and 2003 amounted to approximately $87,000 and $75,000, respectively. 11 (h) Income Taxes No income tax provision has been made in the accompanying financial statements since for Federal, state and local income tax reporting purposes, the Companies are treated as partnerships and, therefore, each company's taxable income or loss and tax credits are allocated to its members or partners. (i) Revenue Recognition The Company has entered into various license agreements that provide revenues based on minimum royalties and additional revenues based on a percentage of defined sales. Minimum royalty revenue is recognized on a straight line basis over each period, as defined, in each license agreement. Royalties exceeding the defined minimum amounts are recognized as income during the period corresponding to the licensee's sales. 3. Royalties Receivable Royalties receivable, amounting to $271,267 and $2,802,505 represent receivables from various licensees as of December 31, 2004 and 2003, respectively. The revenues the Companies receive from Kmart, a significant customer, are based upon minimum royalties and retail sales of the Companies' licensed products. 4. Note Receivable Note receivable, amounting to $100,000 and $150,000 at December 31, 2004 and 2003, respectively, from an unrelated party, together with interest at the rate of 3% per annum, is due December 31, 2005. Interest income amounted to $3,000 and $4,500 for the years ended December 31, 2004 and 2003, respectively. 12 5. Other Receivable Under the terms of the March, 2001 asset purchase agreement with Joe Boxer Corporation (the "Seller"), an unrelated company, JBC was entitled to receive 72.7% of all the retained assets and proceeds (as defined in the agreement) distributable to shareholders of the Seller. As of January 1, 2003, JBC's share amounted to $1,084,914, of which $155,394 remains outstanding as of December 31, 2004 and 2003. The Companies have determined that approximately $75,000 remains collectible and have written off $80,394 during the year ended December 31, 2004. 6. Property and Equipment, Property and equipment, net consists of the following: net
Estimated December 31, 2004 2003 useful lives ------------------------------- --------------- -------------- --------------- Furniture and fixtures $469,526 $4,613,599 5-10 years Computer software - 6,198 5-10 years Furniture, displays and equipment under capital leases - 54,727 5-10 years Leasehold improvements - 8,494 Term of lease ------------------------------- --------------- -------------- --------------- 469,526 4,683,018 Less: Accumulated depreciation and amortization 138,872 2,344,577 ------------------------------- --------------- -------------- --------------- $330,654 $2,338,441 =============================== =============== ============== ===============
Depreciation and amortization on property and equipment, included in the results of operations, amounted to $330,866 and $654,819 for the years ended December 31, 2004 and 2003, respectively. Property and equipment with a net book value of $1,676,921 were disposed of during the year, with the loss on disposal included in general and administrative expenses of the result of operations as of December 31, 2004. 13 7. Intangible Assets, net Intangible assets, net consist of the following:
Amortization December 31, 2004 2003 Period ---------------------------- ---------------- ---------------- ------------------ Trademark $11,864,139 $11,864,139 Indefinite Financing costs 717,244 717,244 3-3/4 years ---------------------------- ---------------- ---------------- ------------------ 12,581,383 12,581,383 Less: Accumulated amortization 717,244 525,980 ---------------------------- ---------------- ---------------- ------------------ $11,864,139 $12,055,403 ============================ ================ ================ ==================
Amortization of financing costs included in the results of operations amounted to $191,266 for the years ended December 31, 2004 and 2003. Financing costs were fully amortized as of December 31, 2004. 8. Due from Member The amount due from member of $291,667 at December 31, 2003, was due on demand and non-interest bearing. Amount was fully settled in 2004 as part of the master exchange and separation agreement. 9. Due from/to Affiliated The amounts due from/to affiliated companies consist of advances which are due Companies on demand and bear interest at a specified percentage above the prime rate of a certain bank (previously the short-term rate as published by the Internal Revenue Service), as quoted from time to time. Net intercomapany interest income included in the results of operations amounted to $327,197 and $357,935 for the years ended December 31, 2004 and 2003, respectively. 14 10. Note Payable Note payable consists of the following:
December 31, 2004 2003 ----------------------------------------- ------------------- ------------------ Installment note payable to Kmart $10,798,458 $16,000,000 Corporation, payable in five equal annual installments together with interest due in the amount of $3,974,206 on the last day of each year commencing December 31, 2003 through December 31, 2007. The annual installments shall first be applied to any accrued interest and the balance, if any, to the principal. Interest is payable annually commencing December 31, 2003 at the rate of 5.12% per annum for the term of the note. Interest expense for the year ended December 31, 2004 amounted to $813,098 (Note 13). The note is secured by the royalties which are due from Kmart to JBC (Notes 1 and 14). Less: Current portion 3,421,325 5,246,308 ----------------------------------------- ------------------- ------------------ $ 7,377,133 $10,753,692 ========================================= =================== ================== As of December 31, 2004, the maturities of note payable are as follows: --------------------------------------------------------- ---------------------- 2005 $3,421,325 2006 3,596,496 2007 3,780,637 --------------------------------------------------------- ---------------------- $10,798,458 --------------------------------------------------------- ----------------------
11. Due to Licensee Due to licensee represents fees for the early termination of license agreements which were terminated in 2002. One of the termination agreements required the Companies to pay $100,000 in four equal annual installments of $25,000 commencing June 1, 2002. Due to licensee as of December 31, 2004 and 2003 amounted to $25,000 and $50,000, respectively. 15 12. Deferred Royalty- financier On March 19, 2003, Licensing and Boxer Co. entered into a royalty purchase agreement to sell with limited recourse to an unrelated third party financier $9,000,000 of future minimum royalties or sales royalties due under the licensing agreement with K-mart for $8,415,000. Under the terms of that agreement, Licensing and Boxer Co. were only liable to the financier for the minimum royalty collections from K-Mart to the extent of $9,000,000, payable to the financier in three installments of $3,000,000 each on April 1, 2003, July 1, 2003 and October 1, 2003. The liability was fully paid as of December 31, 2003. The expense (discount) of $585,000 was amortized for the period March 19 through September 30, 2003 and was included in interest expense. 13. Leases (a) Operating Leases The Companies are obligated under noncancelable operating leases for office and showroom space. The leases, which expire on various dates through March 2011, provide for minimum annual payments. Additional information about the leases are as follows: Boxer Co. has a noncancelable lease for office space from an affiliated company. The lease, which was amended on January 1, 2004, provides for annual gross rental payments of $108,841 (previously $79,254) per annum through the expiration date of March 31, 2011. The lease also provides for contingent rental payments, based on the increase in the Consumer Price Index, commencing January 1, 2005. As of December 31, 2004, Boxer Co. owed this affiliate approximately $38,179. 16 Boxer Co. has a noncancelable lease for office space with a non-affiliated company which terminates on May 31, 2005. During 2004, Boxer Co. vacated the space, paid a $22,000 termination fee and applied the security deposit of $8,000 to rent. The lease provided for monthly rental payments of $7,000 from June 1, 2002 to May 31, 2003; $7,500 from June 1, 2003 to May 31, 2004 and $8,000 from June 1, 2004 to May 31, 2005. The lease also provided for contingent rentals based on real estate tax and operating escalations. Boxer Co. has a lease for showroom space which terminates on September 30, 2007. The lease provides for monthly rental payments of $28,718 through June 1, 2004 and $31,111 from June 2, 2004 to September 30, 2007; plus contingent rental payments, consisting of a proportionate share of any increases in real estate taxes and additional cost of living adjustments based on the increase in the Consumer Price Index. On January 1, 2004, Boxer Co. entered into a revised sublease agreement to rent a portion of its showroom space on a month-to-month basis to an unrelated party for monthly rental income of $5,000 from January 1, 2004 to March 31, 2004; $6,000 from April 1, 2004 to June 30, 2004; $7,000 from July 1, 2004 to September 30, 2004 and $8,000 from October 1, 2004 to December 31, 2004. During 2004, the tenant vacated the space and terminated the lease. In accordance with SFAS No. 13, the rental payments will be recognized on a straight-line basis over the term of the lease. The difference between the actual rent paid and the expense charged is an increase or decrease to deferred rent payable. Future minimum lease payments are as follows:
Year ended Dec. 31 Total Office space Showrooms ------------------------ --------------- -------------- --------------- 2005 $ 482,175 $108,841 $ 373,334 2006 482,175 108,841 373,334 2007 388,842 108,841 280,001 2008 108,841 108,841 - 2009 108,841 108,841 - Thereafter 136,051 136,051 - ------------------------ --------------- -------------- --------------- $1,706,925 $680,256 $1,026,669 ======================== =============== ============== =============== 17 Rent expense, net included in general and administrative expenses consists of the following: December 31, 2004 2003 ---------------------------------- ------------------- ------------------ Minimum lease rentals $ 555,708 $511,370 Contingent rentals 94,039 141,928 Lease termination fees 22,000 - Other rent expense 17,200 - Rent allocated to affiliated companies (255,225) - Contingent rent allocated to affiliated companies (61,454) - Rental income from sublease of showroom (89,000) - Effect of straight-lining - - lease payments (9,442) (5,182) ---------------------------------- ------------------- ------------------ $ 273,826 $648,116 ================================== =================== ==================
Additionally, the Companies make payments under various short-term leases for office equipment. Neither the obligations or payments under such leases are considered significant to the Companies' consolidated and combined financial condition or results of operations. 18 14. Employee Benefit Plans JBC participates in its affiliate's 401(k) and money purchase retirement plan covering all eligible employees. Subject to Federal compensation limits the plan: (1) allows each participant to contribute up to 15% of eligible annual compensation, (2) provides for employer matching contributions in the amount equal to 50% of the first 8% of eligible compensation that a participant contributes to the plan, and (3) provides for employer mandatory annual contributions of 4.4% of eligible participant compensation. Employer contributions authorized by the managing members included in the results of operations for the years ended December 31, 2004 and 2003 amounted to approximately $97,000 and $95,500, respectively. JBC does not provide post-retirement benefits to its employees. 15. Commitment and Contingencies (a) Effective as of August 1, 2004, a) an employment agreement between Boxer Co. and a former executive ("the parties") was terminated, (b) a revenue-sharing agreement between the parties was amended and (c) the parties entered into a gross income payment agreement relating to the future activities of the former executive. In connection with these transactions, Boxer Co. agreed to (a) release the former executive of certain contractual obligations and restrictions contained in the employment agreement and (b) advance the former executive a certain bi-monthly amount (subject to future adjustments) as a Credit against the annual payments due under the revenue-sharing agreement. Based on the results of operations, management has accrued $716,668 as of December 31, 2004. In consideration for these agreements, the former executive (a) forfeited the salary and benefits due to him under the employment agreement and (b) agreed to pay Boxer Co. a percentage of revenue from his involvement in apparel-related activities as set forth in the gross income payment agreement of the parties. 19 Also, the former executive is entitled up to a 15% distribution from net sales proceeds (as defined in the agreement), in the event of a sale of assets or equity of WAG. In addition, within the buyout period, the former executive may elect to terminate the Gross Income Payment Agreement by compensating Boxer Co. an amount equivalent to 15% of the fair market value of the former executive's entities involved in the apparel operations. (b) Licensing has a long-term licensing agreement with a major national retailer (Kmart). This agreement expires December 31, 2007 and can be renewed for an additional five-year period provided certain conditions are met. The license agreement provides for guaranteed minimum annual royalty payments commencing 2003 through 2007 with minimum royalties of $16,000,000 in 2003 and increasing to $19,000,000 through 2007. (c) JBC is a party to an arrangement with a commercial factor, which was to expire in July 2004, which was amended and extended through June 30, 2007, unless sooner terminated by the factor. The factoring agreement requires the Companies and certain affiliated companies to: (1) maintain a minimum "Group Net Worth" and a "Group Fixed Charge Coverage Ratio", as defined, (2) guarantee minimum fees and commissions to the factor and (3) provides for a "success fee", as defined, in the event of a sale of substantially all of the Companies' assets or stock. In addition, all obligations owed to the factor are also guaranteed and partially collateralized by substantially all affiliated companies and certain shareholders and members of these affiliated companies as specified in the factoring agreement. As of December 31, 2004, the Companies and certain affiliated companies did not meet the minimum Group Fixed Charge Coverage Ratio outlined in the factor's agreement. This requirement is subject to a factor waiver. 20 (d) Licensing, Boxer Co. and their affiliated companies are jointly and severally liable on a note payable to GMAC Commercial Finance LLC by an affiliated company. As of December 31, 2004, the balance of that note amounted to approximately $5,167,000. 16. Related Party Transactions The Companies were charged by affiliated companies approximately $2,32,0855 and $3,044,308 for certain selling, distribution, general and administrative expenses for they year ended December 31, 2004 and 2003, respectively. Total expenses charged to affiliated companies were approximately $634,000 and $777,000 for the years ended December 31, 2004 and 2003, respectively. Such charges to and from affiliate companies are determined based on managements' best estimate of costs (primarily direct costs) related to the services provided to such affiliates. 17. Subsequent Event On July 25, 2005, the Company sold its major assets, which included the Joe Boxer Trademark, for $40 million in cash, 4.35 million shares of restricted stock of Iconix Brand Group, Inc. valued at approximately $36,236,000, the assumption of certain licenses and the transfer of approximately $10.8 million of debt and accrued interest to Iconix Brand Group, Inc., a public Company traded under the ticker symbol "ICON" on NASDAQ exchange. 21 EX-99.3 4 ex993.txt UNAUDITED FINANCIAL STATEMENTS Exhibit 99.3 JBC Holdings, LLC and Subsidiaries Unaudited Consolidated and Combined Financial Statements 6 Months Ended June 30, 2005 and 2004 Consolidated and combined financial statements: Balance sheet 3 Statements of income and changes in members' equity 4 Statements of cash flows 5-6 Notes to consolidated and combined financial statements 7-17 2 JBC Holdings, LLC and Subsidiaries Consolidated and Combined Balance Sheet
June 30, 2005 December 31, 2004 (unaudited) ---------------------------------------------------------------------------------- ----------------- ------------------------- Assets Current: Cash $ 3,740,679 $ - Royalties receivable 145,355 271,267 Note receivable 60,000 100,000 Due from affiliated companies 13,258,377 9,440,155 Due from WAG 3,375,346 2,095,073 Inventory 24,128 13,472 Prepaid expenses and other current assets 76,991 74,438 Other receivable 75,000 75,000 ---------------------------------------------------------------------------------- ----------------- ------------------------- Total current assets 20,755,876 12,069,405 ---------------------------------------------------------------------------------- ----------------- ------------------------- Property and equipment, net 270,534 330,654 ---------------------------------------------------------------------------------- ----------------- ------------------------- Other assets: Intangible assets, net 11,864,139 11,864,139 ---------------------------------------------------------------------------------- ----------------- ------------------------- Total other assets 11,864,139 11,864,139 ---------------------------------------------------------------------------------- ----------------- ------------------------- $32,890,549 $24,264,198 ---------------------------------------------------------------------------------- ----------------- ------------------------- Liabilities and Members' Equity Current liabilities: Cash overdraft $ - $ 95,141 Current portion of note payable $3,508,910 $ 3,421,325 Accrued interest, note payable 276,441 - Accounts payable and accrued expenses 183,193 1,141,143 Due to affiliated companies 50,672 38,179 Advance royalties 3,750,000 - Due to licensee - 25,000 ---------------------------------------------------------------------------------- ----------------- ------------------------- Total current liabilities 7,769,216 4,720,788 ---------------------------------------------------------------------------------- ----------------- ------------------------- Long-term debt: Note payable 7,289,548 7,377,133 Deferred rent payable 31,479 38,474 ---------------------------------------------------------------------------------- ----------------- ------------------------- Total long-term liabilities 7,321,027 7,415,607 ---------------------------------------------------------------------------------- ----------------- ------------------------- Total liabilities 15,090,243 12,136,395 Commitments and contingencies Members' equity 17,800,306 12,127,803 ---------------------------------------------------------------------------------- ----------------- ------------------------- $32,890,549 $24,264,198 ================================================================================== ================= ========================= See accompanying notes to consolidated and combined financial statements.
3 JBC Holdings, LLC and Subsidiaries
Consolidated and Combined Statements of Income and Changes in Members' Equity 2005 2004 6 Months ended June 30, (unaudited) (unaudited) ----------------------------------------------------------------------- ---------------------- ---------------------- Royalty income $7,977,903 $8,076,684 ----------------------------------------------------------------------- ---------------------- ---------------------- Operating expenses: Selling, General and administrative expenses 1,954,728 4,197,748 Depreciation and amortization 60,119 368,335 ----------------------------------------------------------------------- ---------------------- ---------------------- Total operating expenses 2,014,847 4,566,083 ----------------------------------------------------------------------- ---------------------- ---------------------- Income from operations 5,963,056 3,510,601 ----------------------------------------------------------------------- ---------------------- ---------------------- Other income (expense): Interest expense, net (290,553) (478,564) ----------------------------------------------------------------------- ---------------------- ---------------------- Total other income (expense) (290,533) (478,564) ----------------------------------------------------------------------- ---------------------- ---------------------- Net income 5,672,503 3,032,037 Members' equity (deficiency) - beginning of year 12,127,803 1,660,184 ----------------------------------------------------------------------- ---------------------- ---------------------- Members' equity - end of year $17,800,306 $4,692,221 ======================================================================= ====================== ====================== See accompanying notes to consolidated and combined financial statements.
4 JBC Holdings, LLC and Subsidiaries Consolidated and Combined Statements of Cash Flows
2005 2004 6 months ended June 30, (unaudited) (unaudited) ----------------------------------------------------------------------- ---------------------- ---------------------- Cash flows from operating activities: Net income $5,672,503 $3,032,037 ----------------------------------------------------------------------- ---------------------- ---------------------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 60,121 366,377 Loss on write-off of note receivables 40,000 - Changes in operating assets and liabilities: Royalties receivable 125,915 2,632,077 Note receivable - 50,000 Inventory (10,656) - Prepaid expenses and other current assets (2,555) (158,880) Other receivable (6,996) (3,262) Cash overdraft (95,141) 20,262 Accrued interest note payable 276,441 (1,592,854) Accounts payable and accrued expenses (957,950) (135,278) Advances from factor - (353,831) Due to affiliated companies 3,800 4,214,369 Advance royalties 3,750,000 (2,000,000) ----------------------------------------------------------------------- ---------------------- ---------------------- Total adjustments 3,082,979 3,038,980 ----------------------------------------------------------------------- ---------------------- ---------------------- Net cash provided by operating activities 8,755,482 6,071,017 ----------------------------------------------------------------------- ---------------------- ---------------------- Cash flows from investing activities: ----------------------------------------------------------------------- ---------------------- ---------------------- Net cash provided by (used in) investing activities - - ----------------------------------------------------------------------- ---------------------- ---------------------- Cash flows from financing activities: Payment of note payable - (1,946,857) Payments of obligations under capital leases - (9,899) Due from affiliated companies (3,979,530) (3,505,855) Due to WAG (1,280,273) (667,244) Payments on due to licensee (25,000) (25,000) ----------------------------------------------------------------------- ---------------------- ---------------------- Net cash used in financing activities (5,284,803) (6,154,855) ----------------------------------------------------------------------- ---------------------- ---------------------- Net increase (decrease) in cash 3,470,679 (83,838) Cash, beginning of year 0 88,252 ----------------------------------------------------------------------- ---------------------- ---------------------- Cash, end of year $ 3,740,679$ 4,414 ======================================================================= ====================== ====================== See accompanying notes to consolidated and combined financial statements.
5
6 month ended June 30, 2005 2004 (unaudited) (unaudited) ----------------------------------------------------------------------- ---------------------- ---------------------- Supplemental schedule of non-cash activities: Redemption of two members' interest in an affiliated company in exchange for a former member's loan and subsequent distribution of that interest in the same affiliated company to the remaining members of WAG - 291,667 See accompanying notes to consolidated and combined financial statements.
6 JBC Holdings, LLC and Subsidiaries Notes to Consolidated and Combined Financial Statements (unaudited) 1. General (a) Basis of Presentation and Description of Business The accompanying unaudited consolidated and combined financial statements have been prepared in accordance with generally accepted accounting principles for the interim financial information. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting primarily of normal accruals) considered necessary for a fair presentation have been included. For further information, refer to the consolidated and combined financial statements and footnotes thereto included in this filing for the years ended December 31, 2004 and 2003. The consolidated and combined financial statements include the accounts of the companies listed below, all of which are under common control (collectively referred to as the "Companies") as follows: Windsong Allegiance Group, LLC ("WAG") - principally serves as a holding company for its wholly-owned (previously 75% owned) subsidiary, JBC Holdings, LLC. As a result of the master exchange and separation agreement, WAG acquired the remaining 25% interest from nZania II LLC, ("nZania"), the former minority shareholder. JBC Holdings, LLC ("JBC") - principally serves as a holding company for its wholly-owned subsidiaries. As a result of the master exchange and separation agreement (explained below), JBC is now owned 100% (previously 75% owned) by WAG. Joe Boxer Licensing, LLC ("Licensing") - licenses (Note 14), markets, promotes and advertises the Joe Boxer Trademark. Licensing also serves as the sole parent company for Joe Boxer Company, LLC ("Boxer Co.") which maintains the Joe Boxer Trademark. 7 JBC Canada Holdings, LLC ("JBC Canada") - is the general partner and holds a .5% interest in Joe Boxer Canada, LP which holds the rights to license the Joe Boxer Trademark in Canada. The remaining 99.5% interest in Joe Boxer Canada, LP is limited partners who are also members of WAG. The licensing income from operations of Joe Boxer Canada, LP for the 6 months ended June 30, 2005 and 2004 amounted to $322,157 and $420,879, respectively, and was combined with JBC Canada and consolidated with JBC. Licensing and JBC Canada are also parties to other licensing agreements which grant licensees exclusive rights to sell licensed products in specific territories. (b) Acquisition On March 28, 2001, JBC acquired certain net assets of Joe Boxer Corporation, an unrelated party, for a cash price of $12,025,000 plus a note payable of $3,500,000 plus the assumptions by JBC of certain capital lease obligations which amounted to $421,749 in a business combination accounted for by the purchase method. Under the purchase method of accounting, the purchase price was allocated to the fair value of the assets acquired. 2. Summary of Significant Accounting Policies (a) Principles of Consolidation and Combination All significant intercompany transactions and balances have been eliminated in consolidation and combination. 8 (b) Use of Estimates The preparation of the consolidated and combined financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, and revenue and expenses, together with amounts disclosed in the related notes to the consolidated and combined financial statements. Actual results could differ from the recorded estimates. (c) Cash Cash includes cash on hand with financial institutions located in Connecticut. (d) Inventory Inventory, consisting principally of finished goods, is valued at the lower of cost (principally the specific identification method) of market. (e) Property and Equipment and Depreciation Property and equipment is stated at cost. Depreciation is provided over the estimated useful lives of the assets, utilizing principally the straight- line method. Expenditures for maintenance, repairs and renewals, which neither materially add to the value of the property nor appreciably extend its useful life, are charged to operations as incurred. When depreciable assets are sold or otherwise retired from service, their cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in the results of operations. As part of the purchase of assets from Joe Boxer Corporation, JBC assumed certain noncancelable capital leases for furniture, displays, and equipment. Under the terms of the leases, (a) the lessors retain a security interest in the leased assets and (b) JBC is obligated for the payment of taxes, insurance and maintenance costs, which are included in the results of operations. 9 At December 31, 2003, the asset values related to capital leases were included in property and equipment at the present value of the minimum lease payments at inception plus any additional costs incurred or fair value, if lower. The capital lease obligations were reflected as part of current and noncurrent liabilities, and the associated interest was charged to expense over the related lease terms. (f) Intangible Assets, Net and Amortization The Companies follows Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets". SFAS No. 142 addresses the financial accounting and reporting for acquired goodwill and other intangible assets with indefinite lives. This statement provides that intangible assets with finite useful lives continue to be amortized over their estimated useful lives and that intangible assets with indefinite lives and goodwill not be amortized, but be tested at least annually for impairment. The Companies have determined that trademark has an indefinite life because it is expected to generate cash flows indefinitely. The Companies perform an annual impairment test for intangible assets under SFAS No. 142. Intangible assets are evaluated whenever events or changes in circumstances indicate that the carrying value of the assets may be impaired. An impairment loss is recognized when the fair value or the estimated future cash flows expected to result from the use of the assets, including disposition, is less than the carrying value of the assets. Amortization of the financing cost is provided on the straight-line basis over the 3 3/4 year term of the related debt. The financing cost was fully amortized as of December 31, 2004. (g) Advertising Costs Advertising costs are charged to operations as incurred. Advertising costs for the years ended December 31, 2004 and 2003 amounted to approximately $87,000 and $0 respectively. 10 (h) Income Taxes No income tax provision has been made in the accompanying financial statements since for Federal, state and local income tax reporting purposes, the Companies are treated as partnerships and, therefore, each company's taxable income or loss and tax credits are allocated to its members or partners. (i) Revenue Recognition The Company has entered into various license agreements that provide revenues based on minimum royalties and additional revenues based on a percentage of defined sales. Minimum royalty revenue is recognized on a straight line basis over each period, as defined, in each license agreement. Royalties exceeding the defined minimum amounts are recognized as income during the period corresponding to the licensee's sales. (j) Presentation of Prior Period Data Certain reclassifications have been made to conform prior period data with the current presentations. 3. Royalties Receivable Royalties receivable, amounting to $145,352 represent receivables from various licensees as of June 30, 2005. The revenues the Companies receive from Kmart are based upon minimum royalties and retail sales of the Companies' licensed products. 11 4. Other Receivable Under the terms of the asset purchase agreement with Joe Boxer Corporation (the "Seller"), an unrelated company, JBC was entitled to receive 72.7% of all the retained assets and proceeds (as defined in the agreement) distributable to shareholders of the Seller. As of January 1, 2003, JBC's share amounted to $1,084,914, of which $75,000 remains outstanding and collectible as of June 30, 2005. 5. Property and Equipment, Property and equipment, net consists of the following: net
0December 31, Estimated useful June 30, 2 2005 lives ------------------------------- --------------- ---------------- ------------------- Furniture and fixtures $469,526 $469,526 5-10 years Computer software - - 5-10 years Furniture, displays and equipment under capital leases - - 5-10 years Leasehold improvements - - Term of lease ------------------------------- --------------- ---------------- ------------------- ------------------------------- --------------- ---------------- ------------------- 469,526 469,526 Less: Accumulated depreciation and amortization 198,992 138,872 ------------------------------- --------------- ---------------- ------------------- ------------------------------- --------------- ---------------- ------------------- $270,534 $330,654 =============================== =============== ================ ===================
Depreciation and amortization on property and equipment, included in the results of operations, amounted to $60,119 and $270,748 for the 6 months ended June 30, 2005 and 2004, respectively. 12 6. Intangible Assets, net Intangible assets, net consist of the following:
005December 31, Estimated useful June 30, 2 2004 lives ---------------------------- ---------------- ----------------- ------------------- Trademark $11,864,139 $11,864,139 Indefinite Financing costs 717,244 717,244 3-3/4 years ---------------------------- ---------------- ----------------- ------------------- ---------------------------- ---------------- ----------------- ------------------- 12,581,383 12,581,383 Less: Accumulated amortization 717,244 717,244 ---------------------------- ---------------- ----------------- ------------------- ---------------------------- ---------------- ----------------- ------------------- $11,864,139 $11,864,139 ---------------------------- ---------------- ----------------- -------------------
Amortization of financing costs included in the results of operations amounted to $0 and $95,628 for the 6 months ended June 30, 2005 and 2004. Financing costs were fully amortized as of June 30, 2005. 7. Due from/to Affiliated The amounts due from/to affiliated companies consist of advances which are due Companies on demand and bear interest at a specified percentage above the prime rate of a certain bank (previously the short-term rate as published by the Internal Revenue Service), as quoted from time to time. 8. Note Payable Note payable consists of the following:
June 30, 20December 31, 2004 ----------------------------------------- ------------------- ------------------ Installment note payable to Kmart Corporation, payable in five equal annual installments together with interest due in the amount of $3,974,206 on the last day of each year commencing December 31, 2003 through December 31, 2007. The annual installments shall first be applied to any accrued interest and the balance, if any, to the principal. Interest is payable annually commencing December 31, 2003 at the rate of 5.12% per annum for the term of the note. Interest expense for the 6 months ended June 30, 2005 and 2004 amounted to $276,440 and $453,338 respectively. The note is secured by the royalties which are due from Kmart to JBC . $10,798,458 $10,798,458 Less: Current portion 3,508,910 3,421,325 ----------------------------------------- ------------------- ------------------ 7,289,548 $ 7,377,133 ----------------------------------------- ------------------- ------------------
13 9. Leases (a) Operating Leases The Companies are obligated under noncancelable operating leases for office and showroom space. The leases, which expire on various dates through March 2011, provide for minimum annual payments. In accordance with SFAS No. 13, the rental payments will be recognized on a straight-line basis over the term of the lease. The difference between the actual rent paid and the expense charged is an increase or decrease to deferred rent payable. Additionally, the Companies make payments under various short-term leases for office equipment. Neither the obligations or payments under such leases are considered significant to the Companies' consolidated and combined financial condition or results of operations. 10. Employee Benefit Plans JBC participates in its affiliate's 401(k) and money purchase retirement plan covering all eligible employees. Subject to Federal compensation limits the plan: (1) allows each participant to contribute up to 15% of eligible annual compensation, (2) provides for employer matching contributions in the amount equal to 50% of the first 8% of eligible compensation that a participant contributes to the plan, and (3) provides for employer mandatory annual contributions of 4.4% of eligible participant compensation. Employer contributions authorized by the managing members included in the results of operations for the 6 months ended June 30, 2005 and 2004 amounted to approximately $30,500 and $50,000, respectively. JBC does not provide post-retirement benefits to its employees. 14 11. Commitment and Contingencies (a) Effective as of August 1, 2004, a) an employment agreement between Boxer Co. and a former executive ("the parties") was terminated, (b) a revenue-sharing agreement between the parties was amended and (c) the parties entered into a gross income payment agreement relating to the future activities of the former executive. In connection with these transactions, Boxer Co. agreed to (a) release the former executive of certain contractual obligations and restrictions contained in the employment agreement and (b) advance the former executive a certain bi-monthly amount (subject to future adjustments) as a Credit against the annual payments due under the revenue-sharing agreement. Based on the results of operations, management has accrued $716,668 as of December 31, 2004. In consideration for these agreements, the former executive (a) forfeited the salary and benefits due to him under the employment agreement and (b) agreed to pay Boxer Co. a percentage of revenue from his involvement in apparel-related activities as set forth in the gross income payment agreement of the parties. Also, the former executive is entitled up to a 15% distribution from net sales proceeds (as defined in the agreement), in the event of a sale of assets or equity of WAG. In addition, within the buyout period, the former executive may elect to terminate the Gross Income Payment Agreement by compensating Boxer Co. an amount equivalent to 15% of the fair market value of the former executive's entities involved in the apparel operations. (b) Licensing has a long-term licensing agreement with a major national retailer (Kmart). This agreement expires December 31, 2007 and can be renewed for an additional five-year period provided certain conditions are met. The license agreement provides for guaranteed minimum annual royalty payments commencing 2003 through 2007 with minimum royalties of $16,000,000 in 2003 and increasing to $19,000,000 through 2007. 15 (c) JBC is a party to an arrangement with a commercial factor, which was to expire in July 2004, which was amended and extended through June 30, 2007, unless sooner terminated by the factor. The factoring agreement requires the Companies and certain affiliated companies to: (1) maintain a minimum "Group Net Worth" and a "Group Fixed Charge Coverage Ratio", as defined, (2) guarantee minimum fees and commissions to the factor and (3) provides for a "success fee", as defined, in the event of a sale of substantially all of the Companies' assets or stock. In addition, all obligations owed to the factor are also guaranteed and partially collateralized by substantially all affiliated companies and certain shareholders and members of these affiliated companies as specified in the factoring agreement. As of December 31, 2004, the Companies and certain affiliated companies did not meet the minimum Group Fixed Charge Coverage Ratio outlined in the factor's agreement. This requirement is subject to a factor waiver. (d) Licensing, Boxer Co. and their affiliated companies are jointly and severally liable on a note payable to GMAC Commercial Finance LLC by an affiliated company. As of June 30, 2005, the balance of that note amounted to approximately $4,227,000 12. Subsequent Event On July 25, 2005, the Company. sold its major assets, which included the Joe Boxer Trademark, for $40 million in cash, 4.35 million shares of restricted stock of Iconix Brand Group, Inc. valued at approximately $36,236,000, the assumption of certain licenses and the transfer of approximately $10.8 million of debt and accrued interest to Iconix Brand Group, Inc., a public Company traded under the ticker symbol "ICON" on NASDAQ exchange. 16 EX-99.4 5 ex994.txt PRO FROMA FINANCIAL INFORMATION Exhibit 99.4 Unaudited Pro Forma Consolidated Financial Statements Introduction The following unaudited pro forma consolidated financial statements give effect to the acquisition by Iconix Brand Group Inc. ("Iconix") in July 2005 of assets of Joe Boxer Company, LLC, a Delaware limited liability company, Joe Boxer Licensing, LLC, a Delaware limited liability company, JBC Canada Holdings, LLC, a Delaware limited liability company, Joe Boxer Canada, LP, a Delaware limited partnership (collectively, "Joe Boxer"), under the purchase method of accounting. These pro forma statements are presented for illustrative purpose only. The pro forma adjustments are based upon available information and certain assumptions that management believes are reasonable. The pro forma consolidated financial statements do not purport to represent what the results of operations of Iconix's would actually have been if the acquisition had in fact occurred at the beginning of the periods presented, nor do they purport to project the results of operations of Iconix's for any future period. Under the purchase method of accounting, tangible and identifiable intangible assets acquired and liabilities assumed are recorded at their estimated fair values, with the acquired assets being adjusted on a pro rata basis for any excess of the assigned value to the assets acquired and liabilities assumed over the cost of acquisition. The estimated fair values, useful lives and amortization of certain assets acquired are based on a preliminary valuation and are subject to final valuation adjustments. Certain acquired intangible assets were determined to have indefinite useful lives in accordance with FAS 142, thus no amortization has been reflected in the accompanying pro forma consolidated statements of operations. Tests for impairment will be performed at least once a year and impairment charges would be recorded if any. The pro forma condensed balance sheets assume that the acquisition had occurred as of June 30, 2005. The pro forma consolidated statements of operations for the six months ended June 30, 2005 and the 11 months ended December 31, 2004 were prepared by combining Iconix's and Joe Boxer's statements of operations for the same periods, giving effect to the acquisition as though it had occurred at the beginning of each period. The consolidated historical financial statements of Iconix's are derived from the consolidated financial statements included in Iconix's Form 10-K for the 11 months ended December, 2004 and Form 10-Q for the quarter and six months ended June 30, 2005. The historical financial statement of Joe Boxer for the year ended December 31, 2004 is derived from Joe Boxer's audited financial statements included herein and the historical financial statement of Joe Boxer for the six months ended June 30, 2005 is derived from unaudited financial statements included herein. Notes to Unaudited Pro Forma Consolidated Balance Sheets: (a) Reflects the allocation of cost associated with the purchase of Joe Boxer's assets under the purchase method of accounting as though the acquisition occurred on June 30, 2005, and the impact of the financing associated with the acquisition. Total purchase price was determined as follows; Cash paid at closing $ 40,000 Fair value of 4,350,000 shares of common stock at $8.33 per share fair market value per share 36,236 Assumption of K-mart loan, including $3,509 due within 12 months 10,796 Accrued interest 309 Value of warrants issued as a cost of the acquisition 788 Other estimated costs of acquisition, including $655 paid after closing 755 ---------- Total cost of acquisition $ 88,884 ========== The purchase price was allocated to the fair value of the assets acquired and liabilities assumed as follows: Accounts receivable $ 3,130 Deferred tax asset 7,000 K-mart licensing contract 1,100 Joe Boxer Tradename 77,654 ---------- Total allocated purchase price $ 88,884 ========== Financing for the acquisition was accomplished through the private placement by a subsidiary of the Company of $63.0 million aggregate principal amount of 8.45% asset backed notes, $17.5 million of which was used to refinance previously existing notes with the same lender, $40.0 million of which was paid to the sellers, approximately $1.0 of which was used to pay costs associated with the refinancing, approximately $0.3 million of which was place in a trust account as required by the lender, and approximately $4.0 of which was available to the Company for working capital purposes. Costs associated with the refinancing of approximately $1.0 million have been deferred and are being amortized over the 7 year life of the refinanced debt. (b) Represents the elimination of historical value of intangibles recorded in Joe Boxer of $11.9 million, elimination of Joe Boxer's assets and liabilities not acquired or assumed, and the elimination of the assumed K-Mart debt obligation already refected in entry (a) above. Assets not acquired which have been eliminated consist primarily of intercompany receivables($16.7 million) and leasehold improvements ($0.3 million), liabilities not assumed which have been eliminated consists primarily of accounts payable of $0.3 million, Notes to Unaudited Pro Forma Consolidated Statements of Operations: (c) Represents the amortization of acquired intangible assets (K-Mart contract) on a straight line basis over the remaining contract period of 2.5 years and the deferred financing fees incurred in closing the re-financing arrangement over the 7 year life of the refinanced debt. (d) Represents the interest expense at 8.45% of interest rate that would have been incurred under the terms of the refinancing incurred as part of the acquisition. (e) Represents the deferred income tax provision that would be recorded against the earnings generated from the acquired business. (f) Represents the shares of Iconix's common stock that were issued as part of the acquisition.
Unaudited Pro Forma Consolidated Balance Sheets (000's omitted, except par value) As of June 30 2005 Pro Forma Adjustment --------------------------------- ----------------------------- Pro Forma Iconix Joe Boxer Note A Note B Consolidated Assets Current Assets Cash............................................... $ 515 $ 3,741 $ 4,047 $ (3,741) $ 4,562 Accounts receivable, net........................... 3,982 145 3,132 (145) 7,114 Due from affiliate................................. 463 16,694 - (16,694) 463 Inventories........................................ - 24 - (24) - Deferred income taxes.............................. 3,349 - - - 3,349 Prepaid advertising and other...................... 297 152 - (152) 297 ------- ------- ------- ------- ------- Total Current Assets................................... 8,606 20,756 7,179 (20,756) 15,785 Property and equipment, at cost: Furniture, fixtures and equipment.................. 1,612 - - - 1,612 Leasehold improvement.............................. - 470 - (470) - Less: Accumulated depreciation and amortization.... 1,366 199 - (199) 1,366 ------- ------- ------- ------- ------- 246 271 - (271) 246 Other assets: Restricted cash.................................... 2,900 - 310 - 3,210 Goodwill........................................... 25,241 - - - 25,241 Intangibles, net................................... 16,121 11,864 78,754 (11864) 94,875 Deferred financing costs, net...................... 1,907 - 1,032 - 2,939 Deferred income taxes.............................. 2,073 - 7,000 - 9,073 Other.............................................. 1,142 - - - 1,142 ------- ------- ------- ------- ------- 49,384 11,864 87,096 (11,864) 136,480 ------- ------- ------- ------- ------- Total Assets........................................... $ 58,236 $ 32,891 94,275 (32,891) 152,511 ======= ======= ======= ======= ======= Liabilities and Stockholders' Equity Current Liabilities: Accounts payable and accrued expenses.............. $ 2,194 $ 183 $ 964 $ (183) $ 3,158 Accounts payable, subject to litigation............ 4,886 3,750 - (3,750) 4,886 Accrued interest, note payable..................... - 276 - (276) - Due to affiliated companies........................ - 51 - (51) - Due to related parties............................. 434 - - - 434 Current portion of deferred revenue............. 1,332 - - - 1,332 Current portion of long-term debt............... 3,024 3,509 4,856 (3,509) 7,880 ------- ------- ------- ------- ------- Total Current Liabilities.............................. 11,870 7,769 5,820 (7,769) 17,690 ------- ------- ------- ------- ------- Deferred revenue....................................... 183 - - - 183 Deferred rent.......................................... - 32 - (32) - Long-term debt......................................... 17,818 7,290 51,431 (7,290) 69,249 Stockholders' Equity Common stock, $.001 par value - shares authorized 75,000; shares issued 28,751 at June 30, 2005 and 28,293 issued at December 31, 2004.......................... 30 - 4 - 34 Additional paid-in capital......................... 76,962 5,000 37,020 (5,000) 113,982 Accumulated deficit................................ (47,960) 12,800 - (12,800) (47,960) Treasury stock - 198 shares at cost.................... (667) - - - (667) ------- ------- ------- ------- ------- Total Stockholders' Equity............................. 28,365 17,800 37,024 (17,800) 65,389 ------- ------- ------- ------- ------- Total Liabilities and Stockholders' Equity............. $ 58,236 $ 32,891 $ 94,275 $(32,891) $152,511 ======= ======= ======= ======= =======
Unaudited Pro Forma Consolidated Statements of Operations (000's omitted, except per share data)
Six Months Ended June 30, 2005 Pro Forma Pro Forma ------------------------------- Iconix Joe Boxer Adjustments Note Consolidated Licensing and commission revenue............... $ 8,587 $ 7,978 $ - $ 16,565 Operating expenses: Selling, general and administrative expenses.... 5,517 2,015 294 (c) 7,826 Special charges................................. 707 - - 707 ------------- ------------- ------------- -------------- Operating income................................ 2,363 5,963 (294) 8,032 Interest expense - net.......................... 845 290 1,744 (d) 2,879 ------------- ------------- ------------- -------------- Income before income taxes...................... 1,518 5,673 (2,038) 5,153 Income tax (benefits) provisions................ (1,780) - 1,000 (e) (780) ------------- ------------- ------------- -------------- Net income ..................................... $ 3,298 $ 5,673 $ (3,038) $ 5,933 ============= ============= ============= ============== Earnings per common share: Basic.................................. $ 0.12 $ 0.18 ============= ============== Diluted................................ $ 0.11 $ 0.17 ============= ============== Weighted average number of common shares outstanding: Basic.................................. 28,516 4,350 (f) 32,866 ============= ============= ============== Diluted................................ 30,115 4,350 (f) 34,465 ============= ============= ==============
Unaudited Pro Forma Consolidated Statements of Operations (000's omitted, except per share data)
Eleven Months Ended December 31, 2004 Pro Forma Pro Forma ------------------------------- Iconix Joe Boxer Adjustments Note Consolidated Net sales....................................... $ 60,409 $ - $ - $ 60,409 Licensing and commission revenue............... 8,571 20,058 - 28,629 ------------- ------------- ------------- -------------- Net Revenue..................................... 68,980 20,058 - 89,038 Cost of goods sold, net of recoveries pursuant to an agreement of $7,566 for Iconix)... 48,229 - - 48,229 ------------- ------------- ------------- -------------- Gross profit.................................... 20,751 20,058 - 40,809 Operating expenses: Selling, general and administrative expenses.... 17,720 8,007 587 (c) 26,314 Special charges................................. 295 - - 295 ------------- ------------- ------------- -------------- Operating income................................ 2,736 12,051 (587) 14,199 Interest expense - net.......................... 2,495 544 3,296 (d) 6,335 ------------- ------------- ------------- -------------- Income before income taxes...................... 241 11,507 (3,883) 7,864 Income tax provisions........................... - - 1,900 (e) 1,900 ------------- ------------- ------------- -------------- Net income ..................................... $ 241 $ 11,507 $ (5,783) $ 5,964 ============= ============= ============= ============== Earnings per common share: Basic.................................. $ 0.01 $ 0.19 ============= ============== Diluted................................ $ 0.01 $ 0.18 ============= ============== Weighted average number of common shares outstanding: Basic.................................. 26,851 4,350 (f) 30,201 ============= ============= ============== Diluted................................ 28,706 4,350 (f) 33,056 ============= ============= ==============
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